1. RBA has trademarked Pactive® because we feel our macro-based approach to investing is quite unique. For more insight as to how RBA approaches ETF selection and allocation, please see this earlier report. http://rbadvisors.com/images/pdfs/Whats_in_your_ETF_Portfolio.pdf
2. Regardless of whether one uses passive ETFs or active mutual funds one must remember that both are simply portfolios of assets. Investors’ general inability to tactically allocate active funds seems likely to translate to an inability to tactically allocate ETFs.
3. Dalbar data supports our contention in the second bullet. The “typical investor” has performed very poorly over the past 20 years (see Chart 4). The “typical investor” will likely be similarly unsuccessful when tactically picking ETFs as they have been when picking mutual funds. Most investors tend to buy high and sell low. Why would that behavior be any different when they invest in ETFs?
Source: Richard Bernstein Advisors LLC., Bloomberg, MSCI, Standard & Poor’s, Russell,HFRI, BofA Merrill Lynch, Dalbar, FHFA ,FRB, FTSE. Total Returns in USD. Average Investor returns are represented by Dalbar’s investor returns which represent the change in total mutual fund assets after excluding sales, redemptions and exchanges.
Fees play a major role in performance
A 2014 SEC report (https://www.sec.gov/investor/alerts/ib_fees_expenses.pdf) outlines the effects that manager fees can have on long-term performance. The report demonstrates that even small increases in manager fees can have a significant detrimental effect on wealth building.
Pactive® strategies are relatively low fee strategies largely because there is no need to support a substantial analyst infrastructure necessary to research hundreds, if not thousands, of individual companies. We feel the potential improvement in performance versus the Dalbar performance history would more than compensate for the strategies’ relatively low fees.
In addition, Pactive® portfolios are transparent and liquid. The trend in many areas of investment management has been toward higher fees, less transparency, and investor illiquidity. Pactive® seems to push back on those trends.
Pactive® investing’s bright future.
Pactive® investing seems to have a very bright future for the following reasons:
1. It is a unique combination of active and passive management, i.e., the active management of passive investments.
2. It is tactical, and can take advantage of significant changes in asset class leadership.
3. It is relatively low fee active management.